Is compensation for renouncing rights of reinstatement that is received in settlement of union grievances taxable? CRA responded:
[C]ompensation received by a former employee from the employee’s former employer for damages as a result of wrongful dismissal will be considered as a retiring allowance and will be required to be included in computing the former employee's income under subparagraph 56(1)(a)(ii). That would generally be the case where compensation is for loss of earnings, renunciation of the reinstatement of employment and other benefits including the costs of seeking new employment, where there is a connection between the loss of employment and such payments.
Consequently, compensation received for renouncing rights of reinstatement received in settlement of union grievances will generally be considered to be a retiring allowance and will be required to be included in the computation of the former employee's income by virtue of subparagraph 56(1)(a)(ii).